20 August 2014

FT: Review of EU banks costs €500m

European regulators will pay close to half a billion euros to consultancy firms and auditors for their work on the region’s health check of its biggest banks – with a large portion of these costs being passed on to the lenders themselves, according to Financial Times research.

The European Central Bank and eight national regulators, including the eurozone’s five largest economies, will spend up to €487.7m on fees to external advisers for the comprehensive assessment, a screening of the region’s 128 biggest lenders.

The probe of banks’ balance sheets is now in its final stages, with the results set to be announced in October. Banks will then have just two weeks to come up with plans to plug any capital holes the regulator finds in their finances. While several regulators will pass on the costs to the banks involved, Banca d’Italia and Banque de France will pay for the external costs of the exercise.

The biggest spender of the eight banking watchdogs is Germany’s BaFin, which is paying out around €240m on the assessment, according to one person familiar with the process. The regulator, which has declined to comment on the fees, is passing the cost on to banks in the industry.

Estimates by some of the German banks participating in the exercise suggest the total cost to lenders in the country, when the fees to their own advisers are included, will be between €360m and €480m.

The Dutch central bank alone has five companies helping it with the comprehensive assessment, including BlackRock Solutions, a consultancy and accountants KPMG. The costs, which will be billed to the banks themselves, have been estimated at between €42.5m and €61.7m. This figure includes extra internal costs, such as the deployment of central bank staff.

The Banque de France is set to pay €80m for the asset quality review and stress tests of its 13 largest lenders.

One of the central players in the exercise is Oliver Wyman, the consultancy group, which has a team working at the ECB’s Frankfurt headquarters. The ECB will pay the company, which led the stress tests of Spanish banks two years ago, €14m to support the preparation and implementation of the assessment, according to a filing by the ECB. The consultant is also working for a number of national authorities, including the Banca d’Italia, which said it will pay the firm €7.3m for its assistance.

The teams in national authorities are separated from the one at the ECB by Chinese walls, according to people familiar with the matter. The so-called “Big Four” accountants, PwC, KPMG, Deloitte and Ernst & Young, also have significant roles. Along with the external firms, more than 6,000 ECB and national central bank staff are working full time on the exercise.

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